Breakingviews - Elliott targets right pressure points at Hyundai

The Hyundai Le Fil Rouge model car is seen during a presentation at the 88th International Motor Show at Palexpo in Geneva, Switzerland, March 6, 2018. REUTERS/Denis Balibouse

HONG KONG (Reuters Breakingviews) - Elliott Management is targeting the right pressure points at Hyundai. Having previously tangled with Samsung, the feisty U.S. hedge-fund manager has waded into the restructuring of another giant South Korean conglomerate. The $1 billion-plus investment by Hong Kong-based affiliate Elliott Advisors seems focused on the most sensitive aspects of Hyundai’s overhaul.

On Tuesday, Paul Singer’s outfit fired a warning shot at South Korea’s second-largest family-run conglomerate, or chaebol. Days after the broader Hyundai empire, controlled by the Chung family, unveiled a critical first step to simplify its complex corporate structure, Elliott called for more clarity on corporate governance and shareholder returns.

The U.S. activist says it holds significant stakes in three Hyundai group companies, including the $23 billion auto parts-maker Hyundai Mobis. That unit has been designated as Hyundai’s de facto holding company, and will sit atop the sprawling autos-to-steel empire.

However, last week’s proposal, in which Mobis will sell two key businesses to a sister company in exchange for shares in the latter, appears to short-change independent investors at Mobis. The deal requires approval from two-thirds of shares that are voted, so Elliott and other disgruntled shareholders could push for more generous terms.

Elliott has other levers to pull, too. For example, Hyundai patriarch Chung Mong-koo and son Chung Eui-sun plan to eliminate the conglomerate’s circular ownership and boost their direct ownership of Mobis. This includes buying Kia Motors’ 17 percent stake in Mobis. Elliott and other Kia shareholders could now push for this deal to be on more favourable terms.

Elliott lost a key part of its campaign at Samsung, failing to block a 2015 merger between two group companies. But the backdrop has changed radically: the chaebol have been the target of growing public and government pressure to reform after a corruption scandal, centred partly on Samsung’s corporate reorganisation, brought down the president and led to the conviction of Samsung’s de facto leader. Elliott is more likely to win support from other investors, and less likely to run into political opposition.

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